The extension of credit with nonexclusive contracts and sequential banking externalities
By: Giorgi, G.D., Drenik, A.and Seria, E
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Material type: 
BookPublisher: American Economic Journal: Economic Policy Description: 15(1), Feb, 2023: p.233-271.
In:
American Economic Journal: Economic PolicySummary: Nonexclusive sequential borrowing can increase default and impose externalities on prior lenders. We document that sequential banking is pervasive with substantial effects. Using credit card applications from a large bank and data on the applicants' entire loan portfolios, we find that an additional credit line causes a 5.9 percentage point decline in default for high-score borrowers on previous loans. However, for low-score borrowers, it causes a 19 percentage point increase. The former use the new credit to smooth payments on preexisting loans, while the latter increase their total debt. These results have implications for "no-universal-default" regulation and financial inclusion.- Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 15(1), Feb, 2023: p.233-271 | Available | AR128613 |
Nonexclusive sequential borrowing can increase default and impose externalities on prior lenders. We document that sequential banking is pervasive with substantial effects. Using credit card applications from a large bank and data on the applicants' entire loan portfolios, we find that an additional credit line causes a 5.9 percentage point decline in default for high-score borrowers on previous loans. However, for low-score borrowers, it causes a 19 percentage point increase. The former use the new credit to smooth payments on preexisting loans, while the latter increase their total debt. These results have implications for "no-universal-default" regulation and financial inclusion.- Reproduced
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